Leviev’s gem cutters challenge De Beers

THE warehouse on an industrial estate in Windhoek looks little different from the beer depot next door.Yet this is Africa’s biggest diamond cutting and polishing factory – a catalyst and a symbol of change in an industry whose basic structure has altered little in the past century.

“Our industry has been going through dramatic changes … and we now stand at the crossroads,” the factory’s owner, Israeli diamond tycoon Lev Leviev, whose LLD company set up the Windhoek polishing factory, told a conference in India.”The old excuse that it is economically not viable to polish diamonds in Africa no longer holds water.”Leviev’s assertion has put him and his empire – which spans the world’s major diamond mining, trading and polishing centres as well as jewellery retail – at odds with the granddaddy of the industry: De Beers.At the heart of the stand-off, and ultimately at stake, is De Beers’ unique trading structure, evolved over more than 100 years of moving diamonds from the poorest continent to rich consumers on the other side of the globe.De Beers takes rough diamonds from its own mining subsidiaries or third party miners to London, precisely sorting them into one of around 16 000 categories of shape, size and colour for sale by its Diamond Trading Company (DTC) unit, many via Antwerp, Belgium – long the home of the industry.The DTC sells on to an exclusive group of buyers, known as sightholders, who either cut and polish the gems themselves or sell them straight on at a profit.De Beers says the structure ensures the trade has access to consistent quality stones.”If you pick up two pieces of gravel, the chances are they are vastly different,” James Nicholson, of De Beers’ Diamdel subsidiary, which is the only channel for non-sightholders to buy rough diamonds direct from the DTC.”But put lots of pieces of gravel through our sorting system and you will end up with pieces that are almost identical.The client knows exactly what he’s buying every time.”The system has changed little since the early 20th century.RUMBLINGS OF DISCONTENT But the system that has served De Beers and its chosen clients for so long is under unprecedented fire from African governments who want a bigger cut of the overall supply line.Sales of rough diamonds from miners worth US$11,3 billion (about N$75 billion) in 2004 equated to US$16,7 billion (N$110 billion) worth of polished diamonds in retail sales, according to Israel-based expert Chaim Even-Zohar.For Africa, the buzzwords are “beneficiation” and jobs.Bending over a revolving diamond polishing plate under the eye of Israeli instructors at LLD’s Windhoek plant, 24-year-old Candy Kawiwi knows she is lucky to have a job in a country with more than 30 percent unemployment.”For more than a century our diamonds were mined and exported in raw form to other countries without adding value to it,” Sam Nujoma, Namibia’s founding president, said when he opened Leviev’s Windhoek polishing plant in June 2004.Nujoma’s complaint has become a popular battle cry among southern African countries, in particular Botswana, South Africa, Angola and Namibia – respectively number one, four, five and six diamond producers by value with more than half of world supply.In the past, De Beers has been able to head off any challenge to its system largely because of its size and unquestioned control over the majority of diamond sales worldwide.But times are changing, and governments with an envious eye on low-cost India’s rise as a global polishing centre have taken heart from Leviev’s eagerness to prove his main rival wrong.Efforts by new diamond producer Canada to foster a local polishing industry have foundered on high labour costs – which are less of an obstacle to lower-wage African countries.Namibia, Botswana and South Africa are also keen to develop national brands for their diamonds – which would mean bypassing the DTC pooling system to ensure local stones are available.Leviev’s group now has mining operations across the region, polishing operations in South Africa and Namibia, and there is talk of setting up shop in Botswana too.Among some 500 employees training in the Windhoek factory are a group of Angolans destined to put a new polishing factory back home into production in November, in a joint venture with the marketing arm of Angola’s state diamond firm Endiama.Leviev’s courting of the region’s governments has come at a particularly sensitive time for De Beers as it negotiates new and repeat mining licences in the region, and it has been increasingly eager to advertise the successes of polishing clients in the region – even if they can still not access De Beers diamonds from local mines.Negotiations for renewing De Beers’ rights to some of the world’s most valuable diamond mines in Botswana led to De Beers and the government agreeing to set up a local sales arm – although De Beers said it had not been a condition for renewal.Meanwhile De Beers’ contract in Namibia – whose diamonds have a higher per-carat average value than other major producers – is up for renewal this year amid much talk from both sides of increasing “local beneficiation”, and South Africa hopes a new diamond law will increase local access to rough stones.”It may well be in the future that the policy of the DTC is realigned,” said Diamdel’s Nicholson.”But that is not the way our sales operate at the moment.It’s an area of debate.”De Beers has already seen its mines’ majority share of the world rough diamond market ebb away in recent decades and with pressure growing to create jobs in southern Africa, Leviev’s expansion may provoke one of the biggest upheavals the sector has seen since the discovery of diamonds in Kimberley, South Africa, in 1871 triggered the formation of the modern industry.-Nampa-Reutersand we now stand at the crossroads,” the factory’s owner, Israeli diamond tycoon Lev Leviev, whose LLD company set up the Windhoek polishing factory, told a conference in India.”The old excuse that it is economically not viable to polish diamonds in Africa no longer holds water.”Leviev’s assertion has put him and his empire – which spans the world’s major diamond mining, trading and polishing centres as well as jewellery retail – at odds with the granddaddy of the industry: De Beers.At the heart of the stand-off, and ultimately at stake, is De Beers’ unique trading structure, evolved over more than 100 years of moving diamonds from the poorest continent to rich consumers on the other side of the globe.De Beers takes rough diamonds from its own mining subsidiaries or third party miners to London, precisely sorting them into one of around 16 000 categories of shape, size and colour for sale by its Diamond Trading Company (DTC) unit, many via Antwerp, Belgium – long the home of the industry.The DTC sells on to an exclusive group of buyers, known as sightholders, who either cut and polish the gems themselves or sell them straight on at a profit.De Beers says the structure ensures the trade has access to consistent quality stones.”If you pick up two pieces of gravel, the chances are they are vastly different,” James Nicholson, of De Beers’ Diamdel subsidiary, which is the only channel for non-sightholders to buy rough diamonds direct from the DTC.”But put lots of pieces of gravel through our sorting system and you will end up with pieces that are almost identical.The client knows exactly what he’s buying every time.”The system has changed little since the early 20th century.RUMBLINGS OF DISCONTENT But the system that has served De Beers and its chosen clients for so long is under unprecedented fire from African governments who want a bigger cut of the overall supply line.Sales of rough diamonds from miners worth US$11,3 billion (about N$75 billion) in 2004 equated to US$16,7 billion (N$110 billion) worth of polished diamonds in retail sales, according to Israel-based expert Chaim Even-Zohar.For Africa, the buzzwords are “beneficiation” and jobs.Bending over a revolving diamond polishing plate under the eye of Israeli instructors at LLD’s Windhoek plant, 24-year-old Candy Kawiwi knows she is lucky to have a job in a country w
ith more than 30 percent unemployment.”For more than a century our diamonds were mined and exported in raw form to other countries without adding value to it,” Sam Nujoma, Namibia’s founding president, said when he opened Leviev’s Windhoek polishing plant in June 2004.Nujoma’s complaint has become a popular battle cry among southern African countries, in particular Botswana, South Africa, Angola and Namibia – respectively number one, four, five and six diamond producers by value with more than half of world supply.In the past, De Beers has been able to head off any challenge to its system largely because of its size and unquestioned control over the majority of diamond sales worldwide.But times are changing, and governments with an envious eye on low-cost India’s rise as a global polishing centre have taken heart from Leviev’s eagerness to prove his main rival wrong.Efforts by new diamond producer Canada to foster a local polishing industry have foundered on high labour costs – which are less of an obstacle to lower-wage African countries.Namibia, Botswana and South Africa are also keen to develop national brands for their diamonds – which would mean bypassing the DTC pooling system to ensure local stones are available.Leviev’s group now has mining operations across the region, polishing operations in South Africa and Namibia, and there is talk of setting up shop in Botswana too.Among some 500 employees training in the Windhoek factory are a group of Angolans destined to put a new polishing factory back home into production in November, in a joint venture with the marketing arm of Angola’s state diamond firm Endiama.Leviev’s courting of the region’s governments has come at a particularly sensitive time for De Beers as it negotiates new and repeat mining licences in the region, and it has been increasingly eager to advertise the successes of polishing clients in the region – even if they can still not access De Beers diamonds from local mines.Negotiations for renewing De Beers’ rights to some of the world’s most valuable diamond mines in Botswana led to De Beers and the government agreeing to set up a local sales arm – although De Beers said it had not been a condition for renewal.Meanwhile De Beers’ contract in Namibia – whose diamonds have a higher per-carat average value than other major producers – is up for renewal this year amid much talk from both sides of increasing “local beneficiation”, and South Africa hopes a new diamond law will increase local access to rough stones.”It may well be in the future that the policy of the DTC is realigned,” said Diamdel’s Nicholson.”But that is not the way our sales operate at the moment.It’s an area of debate.”De Beers has already seen its mines’ majority share of the world rough diamond market ebb away in recent decades and with pressure growing to create jobs in southern Africa, Leviev’s expansion may provoke one of the biggest upheavals the sector has seen since the discovery of diamonds in Kimberley, South Africa, in 1871 triggered the formation of the modern industry.-Nampa-Reuters